Easy cleanups or forbearing improvements: The effect of CEO tenure on successor’s performance

Gonul Colak and Eva Liljeblom

Journal of Financial Stability, 2022, vol. 63, issue C

Abstract: Long CEO tenure can harm firm performance even after the CEO is replaced. We analyze this issue by conditioning post-turnover firm performance on the length of the preceding CEO’s tenure. Identification comes from instrumenting sudden CEO deaths as an exogenous shock to tenure length. We find that when a successor takes over after a long-tenured CEO, operating performance and stock returns are significantly lower, restructuring costs are higher, “big baths” are larger, and firm recovery is slower. Weaker corporate governance and a long-tenured CEO with lower skills amplify these post-turnover effects.

Keywords: CEO tenure; CEO term limits; Restructuring costs; Shareholder value; Firm performance; Hazard model (search for similar items in EconPapers)
JEL-codes: G3 G34 J24 M41 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:63:y:2022:i:c:s1572308922000936

DOI: 10.1016/j.jfs.2022.101072

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